Vladimir Shkolnik, chairman of the board of Kazatomprom (r), and Toru Furihata, representative director and senior managing executive officer of Sumitomo Corporation (l), cut the ribbon to symbolically open a new SARECO plant in Stepnogorsk in November 2012. The plant is set to produce up to 1,500 tonnes of rare earths oxides in 2014, with a potential increase to 3,000 tonnes in 2015, and to 5,000-6,000 tonnes in 2016-2017.
The global market for rare earth elements used in the production of cell phones, flat screens, electric cars and other technology is valued at $3-5 billion and demand is expected to double by 2020. And some say Kazakhstan is in a prime position to capitalise on this rising global market.
Rare earth elements (REEs), or rare earths for short, are divided into two subgroups – Heavy Rare Earths (HREEs) and Light Rare Earths (LREEs). Both are commonly produced from uranium tailings, byproducts of uranium mining. And Kazakhstan happens to be the world’s largest uranium producer.
“According to our estimates,” said Vladimir Shkolnik, chairman of the board of Kazakhstan’s state-owned company Kazatomprom, one of the most significant producers of nonfuel mineral commodities in the country, “Kazakhstan’s resource base is rich in heavy earths. The global demand for heavy earths will remain high and that gives us a competitive advantage.”
It is not only Kazakh industry experts, however, who are optimistic. Jack Lifton, a founding principal of Technology Metals Research LLC, Senior Editor at InvestorIntel and one of the world’s leading authorities on rare earth elements agreed that Kazakhstan could be in a strong position to capture significant market share.
“Kazakhstan already produces uranium. A lot of it. They should be able to recover heavy earth from uranium residue,” said Lifton. “After all, it is not about the pounds in the ground but about our access to these pounds in the ground. If you can extract and separate elements economically, it’s practical. Otherwise, it’s not.”
If Kazakhstan can produce large volumes of rare earth elements, says Lifton who consults, writes and lectures on the market fundamentals of REEs, then they will be well-positioned to meet demand, particularly coming out of East Asia.
Economic growth “is not coming from mature economies where everyone has a cellphone and a car,” said Lifton. “Economic growth is driven by consumer demand in East Asia. China, India, Korea, the Indonesian archipelago – that’s two billion people without a cell phone.”
Lifton notes that there is no single market for rare earths. Rather, there are multiple specialty markets that are highly susceptible to advances in technology and shifts in consumer demand. Even though they often come from the same ore concentrate,and sometimes have overlapping end users, the markets for rare earths are very distinct.The two billion consumers in East Asia whose eventual economic status will allow them to acquire a smartphone are the end-users of rare earths. Given that fact, it is not a surprise that global demand for REEs is forecasted to double by the year 2020.
“Increased use of HREEs in growing green and high-tech applications and the consuming high-tech appetite of the expanding global middle class (set to double over the next 25 years) will put upward pressure on HREE demand and prices”, says David Abraham, a New York–based metals consultant.
Dudley Kingsnorth, a professor at the Centre for Research in Energy and Minerals Economics at Curtin University in Perth, Australia and an analyst at Industrial Minerals Company of Australia (IMCOA), a rare earths consulting company, expects the average market price for REEs in the long-term to increase to $50-70 per kilogramme from the current averages of $30-40 per kilogramme, driven by a strong demand for heavy earths. Lifton agrees that HRREs like dysprosium and neodymium, which are used in the production of permanent magnets and wind turbines will “maintain strong demand and associated pricing.”
Part of that increased demand and another reason Kazakhstan may be in a strong position to capitalise on the rare earths market is that China’s share in rare earths’ global supply and demand has been steadily declining. China is still very much in control of the market, accounting for 85 percent of global production and 65 percent of global demand, according to IMCOA. But China announced in 2010 that it would curtail its production of rare earths and cut export quotas by as much as a third. As a result, global prices skyrocketed and 90 percent of small mines went out of business.
Prices leveled slowly in 2012. China’s export cuts, however, presented challenges for importers of rare earths like Japan (the world’s largest importer of REEs), but also created opportunities for other markets. As a result, output from the rest of the world will increase tenfold by the year 2016, projects IMCOA. The increase in output outside of China will come from mineral-rich countries like Kazakhstan.
“The Chinese are running out of heavy earths, and they really want the rest of the world to develop their rare earth sources,” said Lifton.“The problem is the lack of supply chain components outside of China. In fact, at the present moment, China is the only country with a toll supply chain from the mine to the product assembly line. The Chinese are very open to the idea of a toll supply chain established outside of China.” And, Lifton continued, “for political and historical reasons, they would prefer it not to be in Japan. Kazakhstan, given its geographical proximity to China and rich resource base, is in a great position to build this vertical supply chain. It would raise its economic and political profile in the region. They should not do it in isolation, however.”
Kazakhstan most certainly has not done so in isolation. In November 2012, Kazatomprom and Japan’s Sumitomo Corporation opened a facility in Stepnogorsk, an industrial city 170 kilometres north of Astana, to produce rare earth oxides with a projected capacity of 1,500 tonnes a year.
Kazatomprom is planning to establish a REEs-based vertically-integrated production chain at this state-of-the-art facility designed by Kazakh, Japanese and European engineers.
“Our plan is to build a production plant for separating rare earth oxides and metals from ore concentrate by 2016 and start producing REE permanent magnets by 2018. That would represent a move from raw materials production to processing in line with the principles of Kazakhstan’s state programme of industrial-innovative development,” said Shkolnik.
In his recent state-of-the-nation address, Kazakh President Nursultan Nazarbayev emphasised the importance of bringing new technologies to the country and cooperating with the world’s leading companies operating in mining facilities. “Kazakhstan needs to fully use the potential of foreign direct investment and bring foreign expertise to develop its mining sector,” said the President.
Both France and Germany have signed long-term strategic partnership agreements with Kazakhstan securing a source of rare earths for the countries’ industrial needs. The agreements cover not just prospecting and mining, but also include plans for geological surveying and exploration.
There is no doubt that Kazakhstan is well positioned to become a global player in REEs. The recent agreements with Japan, France and Germany will likely unlock other investment opportunities in the country, particularly if Kazakhstan proves to be a reliable supplier of materials and eventually finished products to outside markets. Increasingly, customers around the world will be turning to technology that includes a little bit of Kazakhstan.
